文档介绍：Part 2 Monopoly
Market power and dominant firms
Non-linear pricing and price discrimination
Market power and product quality
Market power and dominant firms
Market power-the ability of a firm to profitably raise prices above marginal cost.
Sources of market power: maintenance of market power requires barriers that prohibit or restrict entry of new firms.
A dominant firm with petitive fringe: 2 factors that might limit the ability of a dominant firm to exercise market power are petitive fringe and the impact of product durability.
Durable goods monopoly
Market power: a second look
Benefits of monopoly
Summary
Sources of market power (1)
To maximize profits, the monopolist produces where marginal revenue equals marginal cost.
The role of economic profits is to provide a signal regarding the social value of interindustry resource allocation. Positive economic profits in a market indicates that the social value of resources producing that product exceeds their value in their next best alternative use. We expect that economic profits will attract entrants: entrepreneurs have an incentive to bid resources away from alternative uses and enter. If the new entrants have access to the same technology as the incumbent monopolist we would expect that, over time, the incumbent’s market power would be eroded and eventually eliminated. Entrants provide alternative sources of supply to which consumers can substitute, reducing the profitability of raising price above marginal cost. If entry is easy-there are no barriers to entry-then in the long run market power is eliminated by entry and the equilibrium price pc should equal marginal cost and economic profits will be zero. Market power-when there is not relatively large economies of scale-can only persist in the long run if there are barriers to entry that limit the extent petition. If there are economies of scale, then free entry will eliminate economic profits and firms will only be able to exercise sufficient market po